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rain man david all right everybody welcome it is the podcast
you've been waiting for the all in pod emergency
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episode 20 the number 11 podcast in the
world number one in tech number 11 overall
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joe rogan sway pivot npr rachel maddow left in the
dust welcome to the number 11 podcast in the world
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can you believe it besties with us the queen of
kenya himself david friedberg rainman david sacks
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hot off the banger by young spielberg closing
up episode 19 and of course the dictator
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chamath polly hapatia how we doing boys lovely
how are you lovely friedberg lovely lovely it's
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a lovely tuesday emergency pod and so with you
guys um retired from craft ventures to pursue
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his dream of being a fox news host how's that
going for you now that you've got full media blitz
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well yeah i've been i've been invited i was on
bloomberg i've been invited on cnbc tomorrow i
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might even be on fox on thursday so everybody
maybe tucker everybody wants a piece of the
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besties everybody wants a piece unbelievable
we're pariahs in our own industry and now
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we've transcended tech i've taken our rightful
position i got invited on cnn which is crazy
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uh on what show on which show the guy with the
british accent he kind of does um piers morgan
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no there's another guy who does cnn international
and they were doing like a whole oh that guy yeah
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yeah you know the guy with the glasses
he's funny he's pretty funny yeah i i didn't do it um i really do not want to
speak for robin hood but uh we do need to
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pick up where we left off in episode 19 which
a lot of people were wondering chamath are we
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still friends are we still dusties we are um but
i do want to say one thing um jason and i talked
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this weekend and he said something to me which i
actually thought about a lot which is that hmoth
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when you get that emotional you know i think the
the point of what you're saying gets lost and um i
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had i had a lot of time to think about that um so
one i wanted to say jkl if if anything i said um
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you know hurt your feelings uh i want to say i'm
sorry i think you are the most incredibly loyal
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person and that you know spans friendship to
being an investor too so i just wanted to say
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i'm sorry to you and to be quite honest with
you when i when i listened to a couple of my
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comments i was like wow you know i was a little
emotional um and i think uh it didn't need to
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be that super extreme i think you know the thing
that it touches for me is like i forget sometimes
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maybe where i'm at today and i go back to where
i was 20 years ago or how i felt as a 16 year old
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and i channeled that a little bit so anyways
jacob i just want to say i love you with all
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my heart and i'm sorry i love you too chamath
and you know it it did get a little bit personal
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and we were all passionate about you know our
positions and you know it was a little difficult
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for me because i'm trying to give my guys my team
robin hood the benefit of the doubt and it wasn't
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an easy week obviously to do that but just to to
recap here sunday vlad was on clubhouse with elon
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musk our pal who almost blew up clubhouse and uh
there were so many people trying to get into that
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room and i think it tops out at 5000 on clubhouse
that people were holding their phones up to their
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youtube accounts i think that's probably how most
of us listened to it was the youtube people were
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just syndicating it live to youtube but uh
ilan did a tremendous job interviewing vlad
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uh which is leads to a really interesting topic
david about subjects just routing around the
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press and going directly i mean elon is
now the best interviewer in the business
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um and he basically said listen did you have a gun
to your head and i think it was pretty much that
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uh according to the reports that have come out
the depository and trust and clearing corporation
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which is wall street's main clearinghouse for
stock trades demanded 3 billion in addition to
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collateral from robin hood which they said was
an order of magnitude more than usually required
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we all know they um raised 2.4 billion this week
on top of the 1 billion from wednesday on top of
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the 600 million credit line that's 4 billion in
cash apparently the requirement for them went from
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3 billion to 700 million so it seems like that's
there's some equaling out of what they have to
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cover and uh the gme short interest dropped in
half today it's monday i'm sorry it's tuesday
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but yesterday it had dropped in half the squeeze
seems to have settled down wall street bets has
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clearly won and of course um episode did uh jason
did supernova i i didn't listen to it but did um
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do you guys think that uh elon and vlad got to
the truth like was it clear well let's get an
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independent party here sex yeah so um i thought
the the interview was was a bit curious um because
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uh it it took elon several tries to get vlad
to say the the quite frankly the obvious answer
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um elon set it up saying you know what what
i think all of us were thinking which is look
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were you either forced to do this or is it
an action that you decided to take and if so
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why and you know and and elon kept trying to get
him to say yeah we were forced to do this and vlad
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wouldn't quite say that he gave these very vague
ambiguous answers which is why elon finally said
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listen did you have a gun to your head or not
blink twice you know and so it was i don't know
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whether it was a function of miscommunication or
whether we just don't know all the facts yet but
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i don't feel like the interview put everything
to rest the way that it easily could have
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um and and you look i don't want to be i don't
want to pile on to the situation i you know i'm
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i'm pro-founder i'm going to give vlad and
robin hood the benefit of the doubt here
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i think probably they were compelled in some way
to do this i don't think they wanted to do it but
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you know if we're going to make this a teaching
moment what i would say is like to any founder
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if you're ever in the position of having to take
an action that is inimical to your stated mission
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right and their stated mission is freedom
to trade what was the word you used a nematode anathema sure yeah if you're going to
basically violate your state admission you either
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need to post the government order that required
you to do that or you need to post a very
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well-reasoned blog explaining why you're doing
that and you know if i were robin hood and i got
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a call in the middle of the night saying that
you have to basically take this trade offline
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i would say well give that to me in writing
because i'm gonna have to post that on my
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website right if i don't have a choice about that
i you know i need to refer back to this industry
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order that i'm receiving and the fact they didn't
do that and the fact that they didn't post a blog
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explaining the reasons behind the choice and
in fact vlad's now had to go back three times
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to explain it i think that's created this world
of problems for them there's a difference between
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this being a regulatory requirement and
a commercial requirement correct like if you think about the you know the the the law
um the regulatory body that oversees the law that
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that kind of um uh oversees what they're doing
business-wise the sec or whoever could have
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come in and said here's the here's what i'm
telling you you have to do i'm your regulator
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um but what happened was there are these clearing
firms that they partner with that said i need you
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to post more capital and rather than post more
capital or take the risk of going bankrupt they
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said we are going to restrict trading to minimize
the capital requirements that we have on our book
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and so if you think about what that decision comes
down to it's a decision of either our customers
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are going to lose money or we're going to lose
money and um and i know that it's not that black
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and white but you know it's very difficult to kind
of explain the nuance of what took place there
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but it really was a point of like we are going
to lose money or we are going to go bankrupt or
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our customers are going to have to lose money and
that's such a tough decision i can't imagine any
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executive any of us being in that situation and
deciding do you protect your shareholders or do
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you protect your customers and how much do you
let your shareholders lose how much do you let
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your customers lose and it was a very complicated
situation that they found themselves in because
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their business model was predicated on this
clearing you know on this model that they ran
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that uh when suddenly a lot of risk came on the
book they didn't have the capital to cover it
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and and they had to basically uh you know limit
their their customers as a result it was a pretty
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ugly situation but but david well kind of say
one thing i actually think that if the choice is
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simply between you losing money you the company or
your customers or you lose your users losing money
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i think that's an easy choice i think the company
eats it look what airbnb did during covet right
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when they had a whole ton of cancellations
because of covid they ate the they ate all
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those deposits they made good on that and i
actually think if that's all that was involved
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that was a big mistake i think robin hood should
have eaten it jamath you want to chime in here as
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we go around the horn look i think um here's what
we've learned which is that there's all kinds of
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ways in which this financial infrastructure
works that none of us really understand
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it turns out that it may have also included
the people running robinhood to be quite honest
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um and so you know we know what payment for
order flow is now we know that you know some
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companies like public have completely issued
it um you know folks like robin hood make a
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ton of money from it i think it's clear that
you know elizabeth warren to aoc to whomever
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are going to now spend a bunch of time
talking about it it may or may not change but
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before the problem with the whole situation
of gamestop actually doesn't really
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surround that because it's more of a symptom the
real problem was what led up to it and what led up
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to it was you know the insistence that a bunch of
organizations needed access to a preferential set
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of data so that they could theoretically
participate in that order flow before and the second was that the rules for you
know certain organizations are different than
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those for banks and so you know hedge funds can
leverage themselves up to such a massive degree
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that you create that you know ltcm type of
issue where you know you take 5 billion and
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all of a sudden you have 1.5 trillion so that that
shouldn't happen right so we need to figure out
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how we can actually deal with those systemic
issues upstream and then we need to have better
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disclosure downstream so that consumers
could choose hey listen if you want you
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know pfof by the way as i've learned in the
last couple days payment for order flow is
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actually not necessarily such a bad thing in
certain cases because it actually guarantees
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better price execution in some cases but
that's not always true for options i think it's
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somewhat more true for stocks there are you
know for example like jason when you ask me
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you know i asked the team at so far like you know
what's the how much how much is uh how much is
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made on payment for order flow and the answer was
1.5 million dollars and the forecast for next year
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was like 400k so that's materially different
than 400 million dollars right so you start to
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figure out like okay how should we think about
these problems and i think that's what we have
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to face we have to get answers to these questions
now yeah there's definitely going to be a lot of
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investigations into this and thinking it through
i think there are kind of three possibilities here
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when you when we analyze this now that we're
a week out from it i think uh all going down
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which is was there poor communications or other
non-disclosures in place right we're trying to
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figure that out with robinhood it feels like
there's both right there there could very well
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be non-disclosures with this private company the
dt cc i mean obviously they could have optimized
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communications and then was this a black swan
event or to your point is it poor preparedness
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jamath we have to figure that out how prepared are
these companies to deal with this kind of stuff
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and then is it really bad optics that citadel
and all these people are involved or is it a
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conspiracy a grand conspiracy and then if there's
going to be an investigation it's going to be
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pretty hard to cover up any conspiracy right can
i offer one idea i think that there are certain
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there are certain parts of the economy or you
know the way in which the world works where
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you you can't distinguish you know bad operational
capability and black swan events i'll give you an
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example airplanes there is just no situation
where you could say a plane crash was a black
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swan event and you move on right and we
we decided that a long time ago and so as a result just the amount of risk management and
compliance is so high that every time something
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like that happens it's it's an enormous process
and we've seen that in the 737 thing for boeing
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yeah 737 max by the way they just got settled
too for just discussion which is kind of crazy
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those planes are back on and nobody went to
jail right so that's an example at the other
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end of the example you know we have things that
have happened like on facebook and twitter and
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instagram and snapchat which is like hey all of a
sudden like you know certain kinds of content or
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certain things happened like the christchurch
mass shooting the the societal judgment there
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was that that was a black swan event you
know we don't need rules and regulations
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and so i think that another important question
that we have to ask is is the financial plumbing
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that you know sort of allows the capital markets
to work and specifically the financial plumbing
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that allows retail normal folks to participate
in order to try to make money and get ahead
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should that be deemed more like what use adjacent
black swan like infrastructure where it's like
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sometimes [ __ ] happens and we just move on or
is it more like an airplane crashing where you say
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none of this stuff should be allowed to happen can
i can i add one one more point to that which is
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i i think that um it's frankly spin to be trying
to characterize uh concerns about what happened
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as a conspiracy theory you know i heard uh
vlad used that word and jason now you're
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you're echoing the company's talking points the
reason this is not a conspiracy is because citadel
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is on both sides of the trade it's a conflict
of interest we should be using the word conflict
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not conspiracy now the question is how do we
interpret that conflict of interest you have
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company you have citadel providing payment for
order flow so they're basically executing uh robin
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hood's trades they're their biggest customer
and then at the same time they're moving in
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um and they're backing up citron and melvin so
they're on both sides of this trade how does
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that work how can we not have questions about
that and to then characterize that oh it's a
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conspiracy theory if you have questions about it
really no no i'm totally fine with people having
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investigating if there is a conspiracy right and
the conspiracy that people were floating is robin
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hood was told to stop trading these stocks
by citadel that did not happen if that did
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happen that would be explosive and impossible
to cover up what it was is does this dtcc have
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some influence or does citadel have influence on
the dtcc you know that those are the questions
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that i think remain unanswered the dtcc is a
cooperative so it's a collection of its member
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organizations so by so i think what we'll we'll
find out which organizations were part of dtcc
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who made the decision who then told robin
hood you know we'll also find out by the way
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who put in the money to robin hood you know did
they have a direct beneficial interest in them
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having the dtcc make that decision and so i think
where david's right is like imagine this conflict
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of interest i now let's just use me as an example
i is social capital i am buying their order flow
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i am also a member of the cooperative i'm also
backstopping their investment and now all of a
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sudden you would say welchmath your hands are
way too messy here right like your your fingers
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are in a lot of pots and how do i know what you
know exploding message on signal wasn't sent
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you don't know you don't know um yeah all we do
know is that you had all these insiders right
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you had uh you had citadel you had you know this
industry consortium whether it's the collective or
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citadel individually they were under pressure
by the industry and at the same time you had
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these outsiders you had these reddit kids who had
basically taken them for 20 billion dollars right
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they had finally figured out a way to beat the
insiders at their own game and just at the moment
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that these outsiders were winning and about to
deliver the coup de gras and bust these guys
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out of the business for good somehow the insiders
managed to tip the board over and start a new game
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that is what people are reacting to and look i
mean you know i i'm not saying that i i don't
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know why vlad would have done it unless he was
frankly forced to do it right because why would he
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um so i'm not blaming him but there is something
fundamentally very corrupt at the way that the
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system and these insiders who have all the power
and all the money when they finally got threatened
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they basically figured out a way to turn the
board over and prevent the outsiders by the way
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the the other thing that isn't getting covered and
this is going to be the tragedy of this is none
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of us really knows the cost of the 3.4 billion
dollars that they took in i'll tell you the only
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group of people that are for sure going to get
completely creamed in this which are employees
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right i mean we know you think they're going to
get too much preference stack because they got
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they got diluted oh my gosh they i mean how do
you not put three do you put 3.4 billion dollars
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in at par who would do that i think that's what's
exactly happened i don't have inside information
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but i think that's exactly what happened yeah
that's my house i mean i think that or perhaps
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a discount to the ipo which is imminent from what
i've been reading online yeah talk about terrible
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timing too right i mean they were trying to go
public this year mike like this may be terrible
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timing or maybe perfect timing i mean it may be
that jason if it turns out that they were able
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to i mean then it then it creates a whole host of
issues which is how stupid are these investors but
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um if if that is in fact what happened because
you look at the for example the the pound of
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flesh that you know silverlight got out of airbnb
what a brilliant trade i mean so like if there
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was one we're going to explain it to you that
was my deal of the year from last year from our
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from our bestie awards you'll go ahead and explain
it freeburg yeah they put in debt and then they
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got warrants and and the warrants ended up making
them silverlake forex it's insane they made they
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made like three four billion dollars right but
the company's worth over 100 billion now so as
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downside protection during a pandemic that could
have gone on for three years no no but that's the
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whole point if you think about that if you think
about the trade of the great financial crisis it
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was warren buffett putting capital into goldman
sachs which was 23. he did the same yeah he did
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5 billion into each of them the same weekend
exactly and he said hey guys everything is fine
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these guys are going to be fine they're backed
by by berkshire and it turned out everything was
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fine and you know he made he made an incredible
fortune and i think i mean on top of his already
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fortune so the point is he made a great trade uh
i think that in the in the silver lake example
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they did the exact same thing they were like
hey guys we believe in this everything's going
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to be fine and when all of us were literally
losing our mind because we were stuck in our
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apartments and houses thinking the world was
going to end silver lake saw they had clarity
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they did a deal which was the trade of the year
david's right and so similarly you would have
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thought that this moment was the opportunity for
the trade of the year of 2021 i mean we're early
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on but all i know is i've been getting increasing
offers from my robin hood sharers in the secondary
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market you know throughout two questions here
we have been having a hard time understanding
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who's short what the short interest is there's a
bunch of like data companies that are providing
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estimates and maybe the data is only clear best
you're right the best source of data that i have
00:20:35
access to is a company called market m-a-r-k-i-t
they're they're they're they're quite large um
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but as of this friday the short interest was still
i think about 50 um in gamestop and so it's been
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it's been ebbing down i didn't check today well
the the report was it got cut in half um again uh
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and that there was a very small short interest
now but the stock dropped another 60 today so
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obviously if you're short the stock you may start
buying and cut and taking your profit and your
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gains and going home at this time and moving on so
do we need to is this going to start a discussion
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of transparency and shorting and should
all that information be short should you
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be allowed to short more than the shares that
are available or that are available in the float
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i think should we readdress shorting in
general no there's a sim there's an even
00:21:23
i think shorting is a healthy component of the
market and i wouldn't i would leave it alone
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uh because there i think there are some legitimate
organizations that short for three reasons reason
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number one is that they are developing a market
neutral strategy for their clients and people
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are should be allowed to pay for that right number
two is people are directionally betting on a trend
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or investing on a trend and they are trading that
against potentially some other position where they
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are long so that's an explicit view less about
being market neutral and then the third is that
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some people see outright frauds and they're trying
to vote loudly that hey listen there's something
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untoward happening here so i think shorting is
really good i actually think the simpler solution
00:22:02
and listen and tell me if you guys agree is just
go to t plus zero settlement why all these margin
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requirements go away altogether the problem the
reason why we have all these margin requirements
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is all of a sudden you have this weird 2 48-hour
period that you know it's like oh wait who's got
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the shares do i have the shares no do you have
the shares so they did i lend them to you did
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you lend them to me are you going to pay me first
am i going to pay you first and instead you know
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this is the kind of thing where it's like in
2021 this should be real time and automatic
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everything every share should be id'd right and
then you should know exactly where it is you know
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by the way there's another point that there's
another point that jamaat didn't make which is
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that there is a benefit to the long holders and
equities um when there is shorting of that equity
00:22:44
in the market which is that they're getting paid
borrow on those shares so for folks that don't
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realize or their broker is but you can access that
borrow if you own shares in a company that you're
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gonna keep holding let's say you own some shares
in amazon and someone else wants to short amazon
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they have to borrow those shares from someone and
they're paying a fee an interest rate to borrow
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those shares and so the cost to short a stock is
actually not zero you have to pay a borrowed to
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borrow someone else's shares so if you're holding
those shares in amazon you can actually make money
00:23:15
if you have the appropriate broker relationship
for those shares being sold short by someone else
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and so this isn't just a people are coming
in the market and slamming down stocks they
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are paying the people that are along the stock for
the right to borrow their shares and and sell them
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ahead of you know buying them back later
um and so in the case of gamestop i think
00:23:34
the cost to borrow got so high uh that
you're basically paying 30 40 50 60 percent
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you know interest rate to borrow gamestop shares
to sell them short because there was so much
00:23:45
interest in selling short but there you know there
is a market dynamic in in the cost to sell short
00:23:51
that um you know that doesn't uh come at
a at a kind of negligible or free cost
00:23:56
the my initial my introduction to shorting uh
in that example was when i first bought tesla um
00:24:03
that you know my broker said you know jamal
if you lend your shares out you can make 24
00:24:08
i remember this conversation 24 to your interest
right and i thought oh my god and then i said well
00:24:14
what what am i really doing and he's like well
you're allowing people to bet against tesla and
00:24:18
i said no and i just kept the shares and i was
like i'm never going to allow people to really
00:24:23
and since then to be clear i've never i've never
ever ever allowed my shares to be borrowed ever
00:24:29
and it's just a philosophical decision i don't
like shorting um but i believe that you should
00:24:34
be allowed to do it i mean if you're going to be a
long holder anyway you're saying i'm going to hold
00:24:38
these shares for five years ten years whatever
i just you know it's a way to juice your returns
00:24:43
it's true it's how a lot of people think about
especially mutual funds that own large positions
00:24:47
and stocks they'll they'll make really good juice
returns because they're getting straight to bars
00:24:52
it gets even better if you're if you're running
a levered book because then you know right
00:24:55
you take a buck you spin it up to six bucks
you buy six bucks a tesla now all of a sudden
00:24:59
you're earning 24 on six shares even though
you've notionally bought one share right
00:25:03
i've still never done it i can't i can't bring
myself to do it i just feel like it's just so
00:25:08
uh i just can't do it i just like it's like
how can you be long and then bet against your
00:25:13
own company i guess well yeah it doesn't make
sense but sorry saks should we limit the amount
00:25:18
of shares that can go short against a company in
some way and should we add a transparency where
00:25:24
if you short more than x percentage of those
shares we know your short position because
00:25:27
that seems to be also very confusing here there
were people speculating on twitter that the wall
00:25:33
street bets crew and i have no knowledge of this
or other hedge funds came in and saw this mess
00:25:39
and that what we've seen the last couple of days
were other people shorting at 300 or it could have
00:25:45
been even been the same traders or some portion of
the traders who ran this up with the short squeeze
00:25:50
then flipped their position from long to short
yeah i look i clearly need more transparency
00:25:56
we need to resolve some of these conflicts of
interest prevent them from happening i think a lot
00:26:00
of the the users of robin hood didn't understand
that they were the product not the customer
00:26:07
that that is a real issue but let me let me kind
of uplevel this and speak to the politics of this
00:26:11
because something really interesting happened
you had everybody from aoc to ted cruz basically
00:26:17
denouncing what happened here taking the side of
wall street bets against these wall street moguls
00:26:23
and so what you're seeing now is a new fault line
in american politics in the post-trump era it's
00:26:29
not just about left and right anymore it's about
insider versus outsider and i think this is going
00:26:35
to be a major major theme that we see and let me
actually i wanna i wanna share something you know
00:26:42
i just wrote a blog post called the insider's
game about this idea and i found a passage in
00:26:47
elizabeth warren elizabeth warren's book which is
really interesting because it describes how the
00:26:52
insider's game works and the person who described
it to to warren is um there is no yeah none other
00:27:00
than larry summers who was uh the former treasury
secretary under obama he was president of harvard
00:27:06
he's the consummate insider and he taught the
insider's game to generations of harvard students
00:27:11
so here's what he said he presented warren with
a choice he said to uh to her well she said
00:27:19
i could be an insider or i could be an outsider
this is from her memoir in 2014 a fighting chance
00:27:25
she wrote outsider quoting larry summers outsiders
can say whatever they want but people on the
00:27:32
inside don't listen to them insiders however get
lots of access and a chance to push their ideas
00:27:38
people powerful people listen to what they have to
say but insiders also understand one unbreakable
00:27:45
rule they don't criticize other insiders that is
the insider's game it's a protection racket where
00:27:53
these powerful insiders these powerful elites
of wall street of uh big business big media
00:28:00
and politics they get together and they protect
each other no matter how incompetent they are
00:28:04
how corrupt they are silicon valley at silicon
valley they're involved in this too but big tech
00:28:10
and this is the revolution i think that's going
to happen i think trump was kind of a a forerunner
00:28:15
of that is that we are going to see a movement of
people across this country who are sick and tired
00:28:21
of the insiders game and they're going to rise
up and vote these insiders out of office and
00:28:26
put in some new people who aren't beholden to
these powerful special interests what you're
00:28:31
speaking to is populism right sex you can call
it populism i call it insiders versus outsiders
00:28:39
i think it's uh it's going to be very
important for folks to not be a career anything
00:28:45
meaning career executive career politician um
career regulator career what if if ever you're
00:28:53
in sort of like if you can put that word in front
of your sort of existence i think what people will
00:28:59
see is someone who as you said thrives on being
an insider and i think that there's just going to
00:29:03
be a ton of distrust career school administration
official you know career admissions person career
00:29:09
anything now is not what you want to be you want
to be sort of a little bit more dynamic because
00:29:13
you can have multiple arcs to your life and you're
not beholden to anybody i mean i think it's a it's
00:29:19
not as black and white as institutions are bad
or institutions are good there are there are many
00:29:25
examples where uh the institutional framework
allows for continuity and performance over time
00:29:32
you know a lot of trump's rhetoric uh and i you
know i know that we're um we're past the trump
00:29:38
era at this point but um there was a lot of
conversation about this notion of a deep state
00:29:43
because there was frustration with how some or
many of these institutions government institutions
00:29:48
were operating but if not for that deep state we
may have found ourselves in a lot of very ugly
00:29:53
situations over the last four years that there
really were layers and layers of career public
00:29:59
servants that did incredible and incredibly heroic
things to preserve democracy to preserve the
00:30:06
rights that we all hold dear in the constitution
and those were um you know really important roles
00:30:12
and the institution played a really important role
in in providing continuity and providing trust and
00:30:18
and security um and so i i think it's easy to
bash institutions when things aren't working
00:30:23
perfectly but we also have to keep in mind that
it's not that all institutions are always bad
00:30:28
it is absolutely true that there is corruption
but there are certainly benefits that we have to
00:30:32
kind of not not allow populism to become a runaway
framework for how we deal with everything we're
00:30:36
frustrated with i'm not saying that i think
i think what i'm saying is institutions are
00:30:41
critically important but now i think we have to
change the rules for how you can be a part of them
00:30:46
and then how long you can stay so for example
like if the rule was you know you can only be
00:30:51
a two-term politician wow that would be what a
cleansing effect that would have on anybody that
00:30:57
chose to serve in politics up and down the board
you know at the federal level at the state level
00:31:02
two terms in and out california california has
that you know we have a 12 year limit right
00:31:06
um in the the state uh assembly and senate
um and so you know i think we're seeing that
00:31:12
happen in progressive places like california
um you know obviously a good segue uh but uh
00:31:18
very um i i think very much agreed that
uh that the notion that there needs to be
00:31:23
um you know we talked about this last time we
need to ensure that the institutions don't become
00:31:27
beholden to special interests and um uh and that
there isn't accountability because the failure the
00:31:33
the lack of accountability is really um where
things bloat over time because you just add
00:31:38
stuff on you don't ever take stuff apart and
uh and ultimately you have kind of an inept
00:31:44
non-functioning institution so let me give you the
report card on california and then we can figure
00:31:49
out if term limits can't fix it what can fix it so
here's just some some data points uh first i'll do
00:31:56
one section first section number one economy and
jobs nearly the highest unemployment rate in the
00:32:00
u.s at 8 plus highest poverty rate in the u.s 18
and a half percent of all californians highest
00:32:05
income taxes in the us 13.3 30 billion dollars
of potential fraudulent unemployment benefits
00:32:12
from 2020 11 billion already determined fraudulent
doubled the oi doubled the oil and gas drilling
00:32:18
permits instead of incentivizing you know maybe
uh climate or biotech or tech jobs a 227 billion
00:32:25
dollar spending pan spending plan for 2021 in
terms of quality of life highest homelessness in
00:32:31
the country worst graduation rate in the country
around 17 percent of students in california don't
00:32:36
graduate the worst slash highest cost of living in
the country and the worst wildfires in the country
00:32:42
1.8 million plus acres burned on covet 19 third
highest rate of covet 19 infections in the world
00:32:48
658 cases per 100 000 people and then the worst
vaccination deployment in the us around 50 and
00:32:55
then culturally i didn't know this i don't know
if you guys know this but um here are the number
00:32:59
of companies this is just a subset that have left
california toyota charles schwab tesla and oracle
00:33:05
in some way shape or form which is estimated now
to have cost california 77 billion dollars of
00:33:12
future revenues and 300 000 jobs over the past few
years nearly 3 million people have left the state
00:33:18
53 percent of californians want to leave the
state and 63 percent of californians believe
00:33:24
the american dream is dead okay so if let's let's
go and figure out okay so if if if term limits
00:33:31
at 12 years don't work what do we do well
i think i think we have to have politicians
00:33:36
who stand up to special interests aren't in the
pocket of special interests i mean the problem
00:33:39
we have in california the biggest problem the
reason why uh california is such a mess is that
00:33:46
we have government of the special interests by
the special interests for the special interests
00:33:51
i mean the politicians in sacramento that we
have a one-party state effectively and they
00:33:57
are beholden completely to these special interests
look at the deals uh they make i mean so example
00:34:02
in california we have uh over 340 000 public
employees who make over 100 000 uh dollars a year
00:34:10
that cost taxpayers over 45 billion okay and you
know we have lifeguards making a quarter million
00:34:16
dollars a year it's crazy right i mean because
the people making these deals um are are in the
00:34:24
pocket of these of these government unions they're
the biggest contributors to california politicians
00:34:28
and you know this is my uh fundamental i guess
concern or or beef with with gavin newsom um
00:34:37
is that you know fundamentally you know he's
worked his way up the the latter of california
00:34:42
politics by you know by basically benefiting from
these special interests throughout his rise you
00:34:49
know step by step he's never challenged
the insiders or any special interests he just kind of caters to this political class
and so that's why i think fundamentally he's not
00:35:00
going to be part of the solution it just feels
like every job he's had in politics is just a
00:35:06
stepping stone to get to the next step and even
the governorship now is just his stepping stone
00:35:11
to get to whatever's next and i think you know
californians are tired of being stepped on in
00:35:18
this way there's i mean there are some structural
challenges in the state right guys i mean like
00:35:23
we should not for forget the fact that there are
some um voter mandated supported propositions that
00:35:32
have passed over the last couple of decades that
really create a structural challenge in terms of
00:35:38
how do you allocate resources and capital and
how can you effectively govern in this state
00:35:43
you know the the three that are often highlighted
is prop 13 which passed in 1978 uh which is the
00:35:49
state uh property tax limit so we've talked
about that one uh i believe in the past there
00:35:55
was a proposition for in 1979 that limits the
amount of money that states uh can appropriate
00:36:01
uh um that the state can appropriate and then prop
98 which passed in 1988 and this is the big one
00:36:07
um prop 98 has been challenged in courts and
there have been you know many many kind of um
00:36:14
uh efforts at finding loopholes and getting
around it and litigating it but it mandates
00:36:20
funding levels in the state from pre-k through
community colleges and it creates a structure that
00:36:26
is really difficult to navigate around and really
difficult to operate or manage it's almost as if
00:36:31
you guys were running a a private company and your
board said here's how much you as the ceo have to
00:36:37
spend this year and here's how you have to spend
it it is such a difficult decision um uh you know
00:36:43
for the uh for the governor to have to kind of say
well you know i'm going to make some changes to
00:36:48
that because he'll end up in court um and so you
know i want to just kind of highlight that there
00:36:53
are structural challenges to the way the state
operates and obviously to get a lot of things
00:36:56
done you still have to pass through the state
assembly in the state senate um and it's not as
00:37:00
as simple as making you know better decisions in
the governor's mansion i think there's uh there's
00:37:05
a lot that we have to kind of resolve structurally
in the state that's going to take a long freaking
00:37:09
time and a lot of cooperating parties um to
get there and so you know i know for those of
00:37:15
us who are very much about making fast quick um
and accurate decisions you know good decisions
00:37:21
this is a really difficult place to do that uh
this state the way the way the laws have been set
00:37:25
up and the way that uh that the legislature has
oversight well i mean look you're right but this
00:37:30
is why we need real leadership we need somebody
who's gonna come forward and say listen we need
00:37:34
to change this proposition another one we need
to change is prop 47 that decriminalized a whole
00:37:39
bunch of behavior i mean crime is exploding in the
state that proposition needs to be looked at as
00:37:43
well right i mean we we need somebody who's going
to come at government from completely different
00:37:49
perspective which is to think about the citizens
of california first of all to pay attention
00:37:54
to the middle class of california and to think
about us as consumers of government services
00:38:01
who need to be satisfied and right now we
have if you were to think about the services
00:38:07
government's providing people are churning off
of it we had net immigration of 135 000 people
00:38:13
net left the state right you know 40 000
families in california pay about half the taxes
00:38:19
if say 10 000 of them leave we've got a giant
hole in the budget that no one knows how to
00:38:24
replace and we have no idea how many people have
even left how many families have left the state
00:38:29
so we really need leadership here to to not just
go along with the special interests who are in
00:38:36
power and who are willing to stand up and and
push for some of these these reforms by the way
00:38:40
i think it's worth just highlighting some of these
numbers because they also speak to the structural
00:38:45
challenge in the state the state of california
generates about 140 billion dollars in revenue
00:38:50
70 of that comes from personal income tax and as
sacs pointed out half of that comes from the top 1
00:38:56
or 40 000 households it is uh it is a you know a
heavy weighting on and by the way that um that top
00:39:04
tax rate of 13.3 applies to households over a
million dollars of income and for those that
00:39:10
don't know you know there's income strata that are
defined by the state and depending on what strata
00:39:16
you and you you pay a different tax rate the
highest strata is making over a million dollars
00:39:20
a year where you pay 13.3 and that's where these
40 000 households cover most of that budget um and
00:39:27
20 to sales and use tax and 10 is corporate tax to
speak to the corporate tax rate for a second you
00:39:32
know that's 10 of our revenue as a state we charge
a 9 average corporate tax rate in the state to
00:39:37
operate that's um incredibly high and it's one of
the reasons besides kind of a challenge that that
00:39:43
elon and others kind of made very public here over
the past year um but that corporate tax rate um
00:39:50
makes it very difficult to operate in the state
relative to other states that are offering
00:39:54
no tax rate lower employ a lower cost of uh
of labor um and less of a regulatory burden
00:40:00
to operate and it's why we're seeing an exodus
not just of people from the state because the
00:40:04
services are obviously not being well managed but
also um of businesses you know finding a better
00:40:09
place to operate in in canada there's an approach
that i think is really useful here which is that
00:40:15
um you know the canadian government um uh offers
credits called shred credits i can't remember if
00:40:23
it's at the federal level but it's definitely in
the state of ontario because i've used this for
00:40:26
for some of our companies you hire engineers and
you can basically capitalize their salary and you
00:40:33
can offset their costs so that when you're
a young company you're effectively paying
00:40:37
zero tax or if you're a small company you
effectively pay zero tax and that seems
00:40:41
really right you know where you're a small
business person and you know you're holding um
00:40:47
you know 5-10 employees and you're making you know
a million bucks a year in revenue whether you're a
00:40:51
restaurant or a software company you basically pay
nothing but then at the other end of the spectrum
00:40:56
you know when those credit when those credits
burn off theoretically if you're a facebook or
00:41:01
a google or an amazon now all of a sudden you know
you can pay a much larger percentage of uh of of
00:41:07
what's due and i think that there's all kinds of
progressive tax schemes that work on the corporate
00:41:13
side there's a bunch of tax credits that you can
use to sort of incentivize certain kinds of jobs
00:41:18
and i i think you're just much better off because
then you know these companies can't leave if all
00:41:23
the people want to stay in one place i want
to highlight one more structural problem so
00:41:26
even if you do resolve that even if you do
resolve these propositions that have passed
00:41:30
that have passed in the past and are causing us
problems in terms of budgeting and ability to
00:41:34
budget adequately going forward one of the other
challenges and even if you do resolve the tax
00:41:39
structure to generate a more balanced um revenue
model that allows for innovation and allows for
00:41:44
employment allows for opportunity we have a uh
this is an interesting stat i found this week
00:41:50
um how what what how many americans i'll just
say the number one out of nine californians
00:41:58
are um a member of a public pension fund
in the state of california one out of nine
00:42:03
and the public pension funds in california as of
the last reporting are roughly 250 billion dollars
00:42:10
underfunded relative to the payment obligations
they have to their members think about that for
00:42:14
a second so not only does the state have a lot
of debt we've got a 250 billion dollar hole
00:42:19
for paying people money that they believe they're
owed in the future and that is creating a massive
00:42:24
problem where the state needs to figure out how do
we fill that hole how do we meet these obligations
00:42:28
to our citizens who worked who earned what
they believed to be a fair income stream
00:42:33
for the rest of their lives that they may
not ever get you know and so so we've got
00:42:38
both the the legislative problem in terms of
how the state is structured we've got these
00:42:42
propositions that have passed that kind of um
you know buckle down the governor and buckle down
00:42:47
the decision makers in terms of what they can and
can't do legally we've got um an income generation
00:42:52
problem with respect to concentration and we've
got some of these you know heavy burdens on us
00:42:57
like health services but also this underfunded
attention liability that is almost like such a
00:43:01
priority and no one's really paying attention to
it because the sirens are going off and meanwhile
00:43:06
the service providers in the state are completely
effing up the service that they're supposed to be
00:43:11
providing you know chemoth highlighted a bunch of
great ones in terms of fire response and whatnot
00:43:15
at the beginning and obviously the vaccine
rollout we know is is just completely flawed
00:43:19
but um you know here's another interesting
stat the california edd this is the the link
00:43:24
i just sent out by the way on our on our
zoom chat but there's 114 billion dollars
00:43:29
in unemployment claims paid since covet this is
an insane statistic but it looks like roughly 27
00:43:35
or 30 billion dollars of fraudulent claims were
paid by the edd on those unemployment claims
00:43:42
so the folks that are actually running these
institutions themselves aren't even operating well
00:43:47
you know not to mention the actual huge
liabilities the state has accrued over the
00:43:50
years and the structural deficiencies so as much
as i would love to um you know kind of propose
00:43:56
that we could all come up with a simple solution
this is a complex freaking set of problems
00:44:00
that probably require several books to resolve
and i just want us to be honest and real about
00:44:04
that that this is um you know this is going to be
a challenging issue probably for decades to come
00:44:09
for this state to get itself out of the holes it's
dug itself into you know one thing i'll say is as
00:44:13
goes california so goes every other state and so
goes america because if there is one state that
00:44:18
theoretically you think would have been positioned
from a human capital perspective to figure these
00:44:22
out and political will it's this state and if
this state can't figure it out we're in a whole
00:44:28
[ __ ] ton of trouble well we're we're not doing a
very good job figuring it out right now that's why
00:44:32
we need to make a change i mean david you're right
about the magnitude of the problems the challenges
00:44:37
but it all starts with some sort of you know
outsider rebellion and that's what's going on with
00:44:42
this recall that's why we have to support it it's
why i support it it's not gonna be the end of the
00:44:48
it's not the it's the beginning of the solution
not the beginning of the beginning at the
00:44:51
beginning it's the beginning of the beginning
but we need to create an institution to solve
00:44:54
the problems over time right it's going to be
it's going to be the coalescence of what you're
00:44:59
pointing out zach which is the the you know
the the will of the strong the will of the the
00:45:03
rebellion uh to figure this out and resolve the
time the institution may be the all-in pod but
00:45:09
um but uh but let me let me build already yeah
but let me let me build on yeah actually jacob
00:45:16
you posted a tweet saying what should we call our
party and uh anyway my suggestion was the outside
00:45:21
surprise party yeah that's the surprise party
but let me build let me build on on freiburg's
00:45:27
point about the pensions okay where did these
giant underfunded pension obligations come from
00:45:34
because i think that's a really important point
to explain so here's what basically happens if
00:45:39
you're a government worker in california you
could typically retire after 20 years with all
00:45:45
of your benefits and and not just 100 of your
salary but the the salary you made in your last
00:45:52
year and so what happens is uh when people get
to that 20-year mark they get a lot of overtime
00:45:57
so that's why we've seen articles about people
retiring you know after you know if you're
00:46:02
retiring after 20 years you could be in your 40s
okay for your pensions so they double up their
00:46:08
overtime they get to 250k then they get a
pension of 125. you don't get your full salary in
00:46:13
retirement right right there there's a there's
a complicated formula but the point is you can
00:46:16
stuff it with over time and it's very generous
and then they can go because they're still in
00:46:20
their 40s they can go get a another government job
somewhere else and then stack that pension on top
00:46:25
and then by the way it doesn't just last until
they die but it lasts until their spouse dies so
00:46:32
now there was a proposal years ago to
move this whole system to like a 401k type of system and it was squashed by who the
unions and newsome opposed it because you know
00:46:44
he doesn't do anything that unions don't want
and so we have these completely unsustainable
00:46:49
pension liabilities everybody can see this train
wreck coming but nobody has the guts to stand up
00:46:54
the unions and do something yeah i mean there's
very few careers that still offer pensions even
00:46:58
the new york times you know over a decade ago got
rid of their pension because people live too long
00:47:03
they retire too early and then the cost
of health care is just so ginormous here
00:47:08
that it's going to crush any pension fund so you
have to move to a 401k and we're it's kind of hard
00:47:15
to say to a cop or a firefighter who's running
into a burning building or putting themselves in
00:47:21
harm's way that they don't get one because it's
such a high-risk job but we really do need to
00:47:25
think of something more reasonable like a 401k and
that's coming from my entire family is you know
00:47:32
cops and firefighters and of service in new york
city and they all have pensions and you are right
00:47:36
david there is uh a tradition of trying to get
a little extra overtime because they average out
00:47:41
usually your last three or four years to give your
average salary to base your pension off of and
00:47:46
then of course you can do another job or go work
go from a firefighter to a cop vice versa garbage
00:47:52
sanitation worker to get those things we didn't
talk about the nimbyism and how extraordinarily
00:47:58
hard it is to build homes here and how extremely
expensive it is a lot of the young people who are
00:48:04
thinking of coming to california are looking
at the housing prices they want to come here
00:48:08
to start companies they love the california vibe
but the the housing is a non-starter you can't
00:48:13
live in the peninsula or anywhere in the the wider
bay area unless you are you know a dual household
00:48:21
income with what four hundred five hundred six
hundred thousand dollars minimum minimum minimum
00:48:26
and that's not even counting private school
but you're talking about where are there sub
00:48:30
one million dollar homes within the proximity of
the bay area they don't exist you go to austin
00:48:36
and i've been looking at austin real estate just
coincidentally and there are many homes that
00:48:40
are three hundred thousand dollars that are four
hundred dollars a square foot everywhere within 30
00:48:46
40 minutes of downtown austin and that's where
young people are going and then finally if we
00:48:51
look at our to to lower and order david we are
not treating fentanyl like the super drug it is
00:48:58
you know it's one thing to have drug reform and to
have prison reform we we know these are important
00:49:05
but you can keep that in your mind that we want
to make a more just legal system while at the same
00:49:12
time not allowing people to deal fentanyl and if
you just type into google fentanyl versus heroin
00:49:20
lethal dose and click on the image search you
will see two vials and it's a very famous photo
00:49:25
where there's like you know a pinch of you know
uh heroin that's the lethal dose and then in
00:49:31
the other vial there are like seven grains
of fentanyl and that's the lethal dose and
00:49:36
we are conflating a homeless problem with a super
drug yeah can i can i add to that so yes please so
00:49:46
so you know i was on the side of decriminalizing
cannabis and i think that and i think that there
00:49:52
we we overcharged too many people for drug crimes
when they were just users and should have been in
00:49:57
treatment and that's why i think there's been
a reaction against over-incarceration and i
00:50:03
understand that but i agree with you that fentanyl
is in a separate category it is this super drug
00:50:08
and here's the problem it is so powerful
it is so addictive and it's so destructive
00:50:14
nobody can hold down a job and get off that
drug once they start once they start taking
00:50:18
it i mean it's just game over so they end up
living in the streets and turning to crime and
00:50:23
petty theft to support their habit and that's the
situation we're in today and we have this growing
00:50:29
mass those massive numbers of people living in the
streets addicted to this super drug and we got to
00:50:35
stop it we got to get tough on this because it's
just you know right now the the the the solution
00:50:41
that our our da seems to be pushing whether it's
gas going in la or chase of booty in san francisco
00:50:46
is they're just not prosecuting anything you know
we had prop 47 downgrade a whole bunch of property
00:50:53
felonies to misdemeanors and now the da's aren't
prosecuting the misdemeanors so they basically
00:50:57
just decriminalized burglary and so you've got
all these you know drug addicts um living on the
00:51:04
streets committing these crimes and they need to
be in treatment so i think part of what we need to
00:51:08
do here i actually think this is a big investment
california needs to make we need giant treatment
00:51:12
centers to address this problem and if somebody
gets caught committing a crime and they're they're
00:51:19
addicted to drugs i don't want to send him to jail
but i would make him go to treatment we have to
00:51:23
think about true compassion true compassion
for somebody who is addicted to fentanyl
00:51:29
is getting them off the street and getting them
into a rehab program or giving them the choice
00:51:35
of going to jail for the crimes they may have
committed so that there is this pressure to go
00:51:39
into treatment just to give you a stat in 1999 we
had like 18 000 overdoses we're now over 70 000
00:51:46
um and if you look just in san francisco we're
talking four or five times the number of overdo
00:51:51
overdose deaths to cover deaths this is a level of
human suffering that just makes no sense and it's
00:51:56
such a nuanced discussion right you can't you can
you have to be able to hold into your brain that
00:52:01
cannabis you know psychedelics mdma psilocybin
you have a long list i have a long list here
00:52:09
of the drugs of your own girl that you ought to
be recreational here are the drugs i'm a fan of
00:52:14
good here are the drugs that i don't take bad no
fentanyl i think you just have to look at the the
00:52:20
chance of recovery and the chance of addiction and
fentanyl and heroin are just tragedies tragedies
00:52:27
we also have to like have the courage to
actually not look at just the symptom like
00:52:31
i think treatment centers are a great idea i think
not sending people to jail is like an obvious
00:52:37
idea i also think if you take two or three steps
back and you think about what are the two things
00:52:42
that send people off the rails number one i think
is lack of a job and then number two is a lack of
00:52:48
mental health resources you put those two things
together it's you're done it's like it's like
00:52:53
kindling and it's like kerosene and a match all in
one and boom it goes and you know we didn't need
00:52:58
to know that answer because you saw that over
the last decade building up in the rust belt so
00:53:03
we knew that that was the those are the boundary
conditions for this so how do you get people back
00:53:08
to work how do you actually give cement you know
the crazy thing about reagan i mean we all forget
00:53:12
but reagan was the one that defunded all of the
uh mental health institutions you know when he was
00:53:17
governor of california and sent all these folks
spilling into the streets well think about how
00:53:20
many jobs that would create if we brought back
you know psychiatric facilities and made them
00:53:25
free this is where if we look at health care not
having a national health care program especially
00:53:31
for mental health is costing us more on the other
side when it comes to suicide if we're gonna spend
00:53:38
money and if we're gonna be in debt be in debt
for the right reasons like sure find a way to be
00:53:43
accountable and transparently spend money that's
fine spending money is fine government should
00:53:48
not be for profit you know government should i
don't even think government should be breaking
00:53:52
even i think that government should be generally
running at a loss and then the net gdp as long as
00:53:57
that's positive and accretive we're doing right
as a society right so government should be doing
00:54:02
the things that that they need to do for people
to have an even starting line but i just want
00:54:06
to yeah go ahead sorry no i was just going to say
that that's where we get it wrong because like we
00:54:10
you know we we like pat ourselves on the back when
the government turns a surplus and then you know
00:54:15
we like explode when a government runs a deficit
instead they're managing to the political theater
00:54:21
of a number instead of really understand how to
run a business but i just want to be clear like
00:54:26
the entire um premise of how that is run and how
we think about this from an economic point of view
00:54:34
is that we have to have gdp growth and if you
don't have gdp growth the whole formula fails
00:54:40
so let's just break this down in a simple way if
i'm um working and i'm making 60 grand a year i
00:54:47
can take out some credit card debt knowing
that i'm going to make an extra 10 percent
00:54:51
next year or an extra 10 percent the year
after if i know my income is going to climb
00:54:54
i can afford to take on some debt which
means spending more than i'm making right now
00:54:58
because i know that in the future i'll be making
more than i am today and i'll be able to pay down
00:55:02
that debt and so the whole premise of how we run
government is we should run at a deficit we should
00:55:08
accrue debt we should build infrastructure but in
order for that work to work i have to increase my
00:55:14
tax revenue in the future and there's two ways
to do that raise taxes or see significant gdp
00:55:21
growth and if you raise taxes you suffer the
problem that california may be suffering now
00:55:26
which is very high net worth people leaving the
state which is going to cause a collapse in the
00:55:30
revenue stream and the whole system fails if
you want gdp growth well you have to kind of
00:55:35
enable the system to allow for gdp growth which
means reducing taxes and growing housing but
00:55:41
the problem is the life that people want to live
doesn't necessarily mean that we need to have and
00:55:46
so this goes back to the housing question do we
need to have more business growth in the state
00:55:52
therefore do we need to reduce tax rates to
encourage business growth and by doing so we
00:55:57
have to also build more housing and the reason
people want to build more housing it's because
00:56:01
they want to see more business here and the whole
premise is kind of flawed if at the end of the day
00:56:07
getting more business here means you also have to
lower tax rates and cause all those problems it's
00:56:12
also how you have community and it's also how
you have diversity like nobody wants to live in
00:56:17
a model culture where everybody's really really
poor or everybody's really really rich i grew up
00:56:22
it's so sickening i grew up in a place
where everybody was really really poor i now live in a place where everybody is really
really rich and the mono culture sucks and instead
00:56:31
what you want is you want transitions you want
people moving up you want people moving down you
00:56:35
want the hard luck story you want the got lucky
story you want it all and this is this is where
00:56:40
we've lost it i'm going to ask you a question
free book are you saying that if 40 000 people
00:56:46
left california we would blow a 70 billion hole
in the budget no we would we would blow a um
00:56:56
yeah about 40 000 count for half the income tax
so it's about 35 of 140. yeah so we would we
00:57:03
would blow a 50 60 billion hole in the budget 40
000 people 40 000 yeah out of 60 million 40 000
00:57:10
homes forty thousand homes out of sixty million
forty million out of forty million yeah yeah forty
00:57:15
dollars a similar thing happened to new jersey
and connecticut when they had everybody moving
00:57:19
down to florida and so this is not unprecedented
um especially with hedge funds and really high
00:57:25
taxpayers you know but what yeah what i'm asking
is is there a better way where you don't have to
00:57:29
depend on gdp growth to balance your budget and to
provide the social services you want to provide to
00:57:34
the state no of course of course not yet all it
all starts with having a healthy economy i mean
00:57:39
always right because that's what generates the um
the prosperity to pay for all the social programs
00:57:46
it's to pay ahead of the curve right that's my
point is like we're always paying ahead of the
00:57:50
curve which forces us to find gdp growth which
is how we get stuck in these cycles and these
00:57:55
problems and this is true not just of the state
but of nations as well and the u.s faces this and
00:58:00
others but by by spending ahead of the curve
by creating infrastructure by creating social
00:58:04
services by setting up these pension obligations
the only way to get out of the debt you've just
00:58:09
taken on is to grow and that creates all of
the systemic problems that ultimately lead to
00:58:14
populism and all of these kind of frameworks for
failure that are going to ultimately end here's no
00:58:19
no no no no no hold on disagree with that look
growth is a precondition for everything else
00:58:25
that's good okay growth growth needs to be managed
okay but it doesn't growth is not the problem here
00:58:31
the problem is a set of policies that are actually
killing growth and driving entrepreneurs and
00:58:36
innovators out of the state we saw elon musk leave
the state why he said that california was starting
00:58:42
to take its success for granted and had been
winning too long okay california needs to realize
00:58:48
it's not highly competitive situation now and
because of covid you can work from anywhere and
00:58:53
austin has become a tech hub and miami's become
a tech hub and those states have no income tax
00:58:58
and we have politicians in california just keep
raising taxes as if we're not competing against
00:59:03
these other states well we are and people are
leaving we're seeing a mass exodus here we've got
00:59:07
to realize that we can't raise tax rates beyond
the point where people are willing to bear them
00:59:13
this is the this is your i think your best point
david is that what the great pause did was it
00:59:18
let people reassess their lives how many people
do we know who either left the state change job
00:59:25
you know broke up with the spouse whatever it is
people reassessed everything in their life and
00:59:30
what people uniformly came to was why am i paying
this much and getting this little in the bay area
00:59:37
in california when i could get twice as much three
basically three times as much in austin or miami
00:59:44
and not pay this amount of taxes and be happier
and that is an existential problem for the bay
00:59:52
area if you know this is not just elon musk or
larry ellison oracle it's also rank and file
00:59:58
developers and the developers don't need to be
in the office so you could have this massive
01:00:03
middle leave too that nobody anticipates
and if all the developers said you know what
01:00:08
i want to be on the reno side of lake tahoe
you know i want to be in austin or wherever
01:00:12
i'm paying less taxes and i'm making the
same money and i got a better quality of life
01:00:16
what do you guys think happened so j-cal what what
happens to california or connecticut or new jersey
01:00:24
and what happens to florida just tell me what i
think it's a death spiral for new york and for
01:00:28
california where unless the representatives in
government start to represent the people who are
01:00:36
voting and living there and voting their interests
as opposed to the special interest to david's
01:00:40
point about the insiders we have disconnected
what the citizens of california want from what
01:00:46
the government officials are providing they're
just not in sync they're basically cow towing to
01:00:53
teachers unions or special interests and not the
people who are building companies or just people
01:00:59
are living here people want to build housing and
they won't let them you can't build apartments in
01:01:03
palo alto or you know anywhere in the city i mean
this is crazy you're right the the only middle
01:01:10
class that's going to be left in california pretty
soon uh it are government workers i mean that's it
01:01:14
that's the only people that can be making over
a hundred thousand dollars a year in california
01:01:18
are the government workers because everyone who's
middle class who's running a business is just is
01:01:24
finding it too difficult and um too difficult
to earn with the level of taxation and to run
01:01:29
their business and their regulation regulation
and they're leaving i mean just think about the
01:01:34
regulation issues of doing any real world i mean
you've done construction in san francisco we've
01:01:40
had businesses that are real world businesses with
storefronts it's it's jumping over hurdle after
01:01:45
hurdle after hurdles shutdown it's brutal what if
uh whenever you started a company in california
01:01:52
you got you know three or four years worth of tax
credits for engineers in return for one percent
01:01:57
of the equity that california was not allowed to
sell sure i mean some equity upside would be great
01:02:04
i have an idea chamoth how about you run for
governor yeah jamal here's an idea why don't you
01:02:10
isn't that why we're doing the emergency pod sacks
i think you should run we'll be right behind you
01:02:15
have we disparaged you too much or has this
been too difficult yeah let me let's speaking of
01:02:20
politics though i do i do need to tell the story
um this is a complete complete non-sequitur in
01:02:25
2012 12 or 13 i can't remember which year mike
bloomberg invites a bunch of us from technology
01:02:33
to uh to the white house correspondence center
we're like yes the white house correspondents
01:02:37
center did you go that's awesome of course i went
once here so hilarious you know myself ian osborne
01:02:44
hussein rama the founder of jawbone and i have
two amazing stories about this my experience at
01:02:49
the white house correspondent center number one
well three number one it's like the dinner itself
01:02:54
is kind of like a prom just because there's
just so many people right and so you know you
01:02:59
have to have a rubber chicken dinner because
there's like a thousand people in the room
01:03:02
but the second was that ella macpherson was
there and i've never seen more incredible hair
01:03:08
in my life just i have this image of this
person's hair and it was like the thickest
01:03:15
like it was like curly but like it looks so soft
this is the most incredible hair i've ever seen
01:03:21
i think those are called extensions or a wig but
go ahead it didn't look like that it looked like
01:03:26
real hair but it just it looked incredible
uh like like a lion like the main of a lion
01:03:31
and then the third story is i we're in a reception
there's an after party at the french ambassador's
01:03:38
place i start talking to this person randomly and
there's like all these stars everywhere but i just
01:03:41
start talking to this to this person and you know
she she's very chatty and i'm chatty chatty chatty
01:03:46
blah blah blah blah we're talking talking and then
at the end of this like sort of like five minute
01:03:50
conversation and we had not really introduced
each other she just kind of said hey and i said
01:03:55
hi and so we started talking and she says to
me um you mind if we take a picture and i'm
01:04:01
like yeah of course and i and i and i had no idea
what was coming so i was like so we take a picture
01:04:06
and she searched me and she says you know i think
you're really fantastic in parks and recreation
01:04:15
oh my lord and i worked so hard thought i was
a disease i'm sorry jesus christ how does this
01:04:24
happen at least she didn't call you urkel i mean
oh my god that was her second choice oh my gosh
01:04:31
i love you and parks and rec anyways that's
my that's my interaction with politics
01:04:35
i think you're ready for politics
because you just avoided the question let's be really honest like i i'm not ready
to to do any of that i what i need to do is
01:04:46
i need to figure out you know a my
business and where it's going and then b i do think it's worth figuring out what are
the conflict of interest laws and what do
01:04:54
you have to do if all of this were to come
to pass because i could not make a credible
01:04:59
decision unless i knew that uh because i
i just have things that i want to do and
01:05:04
that to me are the most important things
like i'll just be really honest with you
01:05:06
like i'm working on something in batteries that i
think is it's important for a lot of places much
01:05:11
you know more than just california and so
like if i have to abandon this battery project
01:05:16
uh i wouldn't do it you know just that simple
so i got to figure that out and you got to write
01:05:20
down all the illegal things you've done on a piece
of paper and all the illegal things you're doing
01:05:24
on a daily basis and then we gotta make sure you
have an extra you have a case of moleskins because
01:05:29
i could start they're never going to get
uncovered yeah the oppo research has begun right
01:05:37
that's that's what the dinner on thursday should
be about should start the oppo research program
01:05:41
oh my gosh that's a that's a long time but
there's certainly there's certainly a ground swell
01:05:48
in interest right sex and there's certainly oh
yeah it's crazy like i think i think chamoth has
01:05:52
um a lot of folks that that love his passion
and the way he speaks to them and that you know
01:05:58
he has a real um sense for what i think people
are feeling and can speak to that and obviously
01:06:04
has experience in kind of making decisions and
allocating resources right so you know i think
01:06:08
there's a lot of interest tomorrow and a lot
of uh drive to see you here's here's you know
01:06:13
[ __ ] or get off the park here's what i'll say
here's what i'll say i've grown up with nothing
01:06:20
and getting to the other side i'm completely
convinced that poverty is a disease that it is
01:06:30
except in this disease it is systematically
um reinforced you know what i mean so jason stop that jason talking job is good and
i would like to say all americans and the citizens
01:06:48
of california i came from nothing i came from i
would eat rice three days a week and then i would
01:06:54
eat the plate the other four by the way the the
the reality is that if if i were to do it if like
01:07:00
all the checks came back and it seemed like it
was a plausible thing i would only do it for the
01:07:03
18 months and just kind of you know but you'd have
to get elected on a mandate where it was so clear
01:07:08
that it's like all of california wanted these
five or six laws to pass like i think it's like
01:07:13
you're not running a candidate you're running
a platform so it doesn't matter who it is
01:07:17
you know whoever goes in it it could be me
but it could be frankly kim kardashian or the
01:07:21
rock or david sachs i think what's really
important is we should get alignment on
01:07:26
a handful of laws that change the trajectory of
the state and the reason why that's important
01:07:30
is if those laws can pass and the state turns
around then that's the roadmap for the other
01:07:35
49 states and i think that's a big deal that's
a really big deal i think it's about a getting
01:07:40
adoption of a playbook a playbook a playbook to
fix california and if that playbook is something
01:07:45
that a group of people from different parties
and different backgrounds can coalesce around
01:07:49
and you know publish that playbook in a way
that's easily understood and um and you can
01:07:54
take it and run it let's let's pick what our
top item would be for me it's the building of uh
01:08:00
multi-family unit housing i think would be in
my top three what's in your top three sacks
01:08:06
well if if if i were to uh write a a met a a sort
of catchphrase for for a campaign uh it would it
01:08:16
would not be make it make california great again
but it would be something more like tough and
01:08:20
tolerant because that's what i think california
wants so tolerant on lgbtq rights um you know
01:08:28
tolerant towards people of different nationalities
towards immigration um you know tolerant on social
01:08:35
issues but i think what californians really
want now is tough on crime tough on hard drugs
01:08:42
negotiate tougher deals with these unions and
special interests who are just pillaging the state
01:08:48
and then you know and frankly
tougher on the politicians because they're making it too tough on the people to
you know to to live and to run their businesses
01:08:56
and you know we need to make it easier on
the people and tougher on the politicians
01:09:01
freeberry what do you got in your top three
items if we if we could only put three items
01:09:06
on the docket you know one two and three
i think from creating much more affordable
01:09:11
housing through multi-family you know going up
as opposed to building out and just allowing you
01:09:17
know anybody who wants to add a couple of stories
they had a couple stories and just more housing
01:09:22
would lower the price of housing and maybe
we have to change you know the taxation and
01:09:28
maybe re-evaluate the value of homes because right
now you buy a home in 1970 for 50k you're paying
01:09:33
one percent of that for the rest of your life
right which then makes it impossible to move and
01:09:38
you got two people living in a five
thousand five bedroom square foot home because they can't move because their
tax bases are so low on it right
01:09:46
what do you got freeberg i mean look the challenge
is with any one of these things you have to
01:09:51
balance it it's like we talked about last time um
you know we talked about adding a transaction tax
01:09:56
to trading on markets but you also have to get rid
of the capital gains tax right if you're gonna get
01:10:03
rid of that um uh you know that that proposition
that locks in the property tax rate i think it's
01:10:09
prop 13 right sex if you're going to get rid
of prop 13 you've got to phase it out over time
01:10:14
but to create the opportunity on the other side
which means how do you create more affordable
01:10:18
housing at the same time that you get rid of prop
13 you've got to enable as you pointed out the
01:10:23
ability for more rapid housing to be developed and
dropping regulatory constraints and maybe removing
01:10:29
some of the union pricing and some of the work
that gets done in the supply chain and so on
01:10:34
and so you know i think it's about the balance
trade-off amongst these things you know if we're
01:10:38
going to talk about trying to keep the top 40 000
households in california and you're going to drop
01:10:43
the tax rate on them to keep them here which is
an extremely controversial anti-populist movement
01:10:49
you know right now you'd have to find
another way to kind of resolve um resolve that gap or at the same time kind of
reduce the cost of our top cost is education so
01:10:58
you need education reform our second top cost is
health care um and and and other related services
01:11:04
and how do you resolve that um that there's a
lot of structural things in there it's probably
01:11:08
a checklist of ten things that you would say
let's go negotiate better prescription drug prices
01:11:13
let's make um you know the services more
efficient meaning how many patients does a
01:11:17
doctor get to see per hour per day per year per
week whatever there's all these things that you
01:11:21
kind of go through and you can make each one of
those dollars that are being spent more efficient
01:11:25
so as much as i'd love to kind of rattle it up
to three different things this is a management
01:11:30
problem and you know as as those of us who have
run businesses that are struggling or challenged
01:11:35
have experienced there isn't one thing to do to
fix a problem when something is not operating
01:11:40
well but you really it really does come down
to talent and so you know i would think that
01:11:44
the people that are sitting in those assembly
and senate seats need to be the right people
01:11:49
and the person sitting in the governor's mansion
needs to be the right person who will surround
01:11:52
him or herself with the right people who are
operators and managers and leaders who know how
01:11:56
to resolve these problems and go through and do
just like that guy did and dave with the napkin
01:12:01
and you know write out look here's the 10 simple
things we can do to fix hhs and here's the 10
01:12:06
simple things we can do to fix higher education
and go in and cut half the expense and if you cut
01:12:11
half the expense you have a lot of things you can
start to do and so yeah i i i don't have a simple
01:12:16
answer for you j-cal but i think it comes down to
balance would you say school vouchers since you
01:12:21
brought up education are the quickest solution
there is to create more competition quickly
01:12:24
by giving parents the ability to take their
voucher and go to whatever school they want i'll
01:12:29
be honest i haven't read enough on school vouchers
to know the ramifications of the program uh
01:12:33
programs that have been proposed so i'm not going
to be very well very thoughtful in that well i'll
01:12:38
i'll i'll speak in favor of the idea of giving
parents more choice i mean these schools are
01:12:43
being are they being run for the students or for
the special interest because right now the parents
01:12:48
don't really get any choice i mean look if we can
recall the governor why can't we why can't the
01:12:53
parents of a school recall the headmaster i mean
why don't we give them the ability to circulate a
01:12:59
petition if they're unhappy i think in the case
of the governor recall if we get 12 percent of
01:13:05
voters to sign the recall petition then you get a
recall election so what if you had a system where
01:13:11
the parents of a school could sign a petition and
then they vote and if the majority of the parents
01:13:17
yeah majority of the parents vote to recall
a school then they can basically replace
01:13:22
the headmaster and run it in a different way why
shouldn't they have that choice it's crazy to me
01:13:27
that's what yeah yeah yeah let me give
you let me give you a little math i just did on my on my calculator here so the
average student in california costs 18 000
01:13:38
a year roughly okay and we have a classroom
size on average of about 25 students it's
01:13:44
actually higher than the national average so
you multiply 18 000 by 25 that's 450 000 per
01:13:51
classroom okay now how much does a teacher cost
i mean okay no that's the average in california
01:13:58
for teachers it's all right let's let's say let's
say let's say that we paid teachers extremely well
01:14:04
let's say we paid the teachers 100 000 a year
because we all believe in having great teachers
01:14:08
okay that would still leave 350 000 left over and
remember you don't have the real estate cost right
01:14:14
the state already owns all these schools so
where is the money going we've systematically
01:14:19
entrenched poverty um i think that what happened
to you friedberg or saks or me or j-cal i don't
01:14:24
think it's possible anymore and i think that we
are aberrations and i think that folks that are
01:14:29
younger than us would look at us um and they look
at us i think in part because they're like god i
01:14:34
i would love to have that shot and i don't think
they know where to start and i think they also
01:14:39
see a system that feels very much rigged against
them so just by bitcoin i mean this is why they're
01:14:43
attracted to buying bitcoin we're doing what they
did with gamestop and why wall street insiders
01:14:48
versus outsiders they feel like they have this
opportunity to show the man and they don't that's
01:14:53
why they don't want to take on school debt i mean
i i don't blame millennials for being disgruntled
01:14:58
if they got a hundred or 200k in debt and they
were told this degree would get them you know
01:15:04
uh this would be their ticket and it was it's been
disconnected it's a great lie it's a great lie and
01:15:10
so you know that's that's one of the big lies and
and i think we're sacrificing it now because like
01:15:14
you know we're we're we're we're making this
great sacrifice because we're exposing these
01:15:20
lies to be exactly as they are so i mean if i
had to pick a couple things jacal i would say
01:15:25
the most important thing for me is school
vouchers tied to like i would increase public
01:15:30
school salaries you pick your number i don't
really care what it is a hundred grand 125 grand
01:15:37
but you need to tie it to school vouchers so
that any parent can put their kid into the best
01:15:42
school that is for them or start their own school
like there needs to be competition five parents
01:15:47
get together and they each get an 18k voucher
they can spend a hundred thousand on a teacher
01:15:54
to teach five students and if they hit their
goals like they're gonna do better what what five
01:16:00
parents even the you know the most disadvantaged
parents would take advantage of this to me that
01:16:04
would be the that's like the first above all else
because i think it creates accountability and it
01:16:09
allows our kids to have a decent shot the second
thing i would probably do is i would actually just
01:16:15
cut all taxes to zero on the personal side but i
would introduce a progressive taxation system for
01:16:19
corporations and i would try some of these novel
things like getting equity in turn for intern for
01:16:23
credits and allowing folks to capitalize certain
expenses i mean these are like i know people think
01:16:28
that's all so stupid but like you know if all
we did was just own one percent of apple google
01:16:32
facebook you'd have three trillion dollars four
trillion dollars trillion with the t you know
01:16:38
what i mean well not you that's four truly in the
market cap but you know you know what i'm trying
01:16:42
to say like if you control one percent of that
it goes a long way um so there's that and then
01:16:49
ah i do think that there's something that we need
to do for people to be able to live i i remember
01:16:54
interviewing somebody and you know he's what
he said to me just made me so sad he's like i
01:16:59
you know he drives an hour and a half
into work every day and then drives an hour and a half home and i was like how
how is this possible and i just thought to
01:17:07
myself like what does that do to you and
your family he goes i don't see my family
01:17:12
and i'm like well can't we just increase your
salary and you know that's not possible because
01:17:17
of the job that he had and then he couldn't
afford to live and so all these things just build
01:17:21
up in the system so um those would be my three
things it sounds like we have a bestie platform
01:17:27
uh we we we uh need to figure out who the best
candidate's going to be hopefully we can convince
01:17:32
stramoth to do it but the next thing but the first
thing we got to do is uh we got to make sure this
01:17:37
recall happens there's another five weeks or so
to gather signatures so everybody should check out
01:17:43
the website it's rescuecalifornia.org it's rescue
california.org if you have the means to donate
01:17:50
please do i donated 50 000 to it they are taking
donations and even if you're out of state but
01:17:57
believe in this cause like tomas said what happens
in california or as california goes so goes the
01:18:02
nation you know it would be a really good thing
to send a message even if you're out of state to
01:18:09
these special interests who are ruining the state
that this isn't going to be tolerated because
01:18:13
every politician in the country is going to hear
that and they're going to start realizing oh i
01:18:18
can't just pay attention to the insiders i need
to start paying attention to the outsiders to the
01:18:23
majority of citizens who've never been organized
before but now they are getting organized and so
01:18:28
we need to send this message that is the first
step we're not going to get any positive change
01:18:33
in this state until the politicians are held
accountable and this recalls the starting
01:18:38
point for that and if you take a picture with the
form and cc your besties will follow you back or
01:18:44
retweet you or like you some combination of that
i saw a couple of people did it after the last pod
01:18:49
so print out the form and go ahead and take
connections the next the next um podcast
01:18:57
um just for everybody to know uh episode 21
we are going to start by reading mean tweets
01:19:05
there have been some there have been
some unbelievably vicious tweets targeted you typically at jason and then and then at
me a little bit at david sacks but finally
01:19:16
really they went after the queen we've broken
the seal and the queen has been targeted really
01:19:24
he was called sanctimonious on twitter we
are going to make him read his mean tweet
01:19:28
to kick off episode 21 and we will see you all
next time on the all-in podcast love you guys
01:19:45
and they've just gone crazy with it besties we need to get mercy's